Mutual-Fund Oversight Undermined by FSOC, SEC’s Aguilar Says

April 2 (Bloomberg) -- The U.S. Securities and Exchange
Commission’s authority to regulate mutual funds is being
undercut by a panel of regulators assigned to examine threats to
the broader economy, Commissioner Luis A. Aguilar said today.

The Financial Stability Oversight Council, which is led by
Treasury Secretary Jacob J. Lew, has cut commission members out
of discussions over the risk posed by large asset management
firms such as BlackRock Inc., Aguilar said in a speech at a
Mutual Fund Directors Forum conference in Washington.

The SEC and Treasury’s Office of Financial Research, which
provides support to the FSOC, have differed over efforts to
study the $53 trillion asset-management industry. The research
office, known as OFR, wrote in a September report that money
managers could pose threats to the U.S. financial system when
reaching for higher returns, herding into popular asset classes
or amplifying price movements with leverage.

The study had “significant factual and analytical
defects” and shouldn’t be used as the basis for policy
decisions, Aguilar said in his speech.

“The work of FSOC and OFR to identify and mitigate
systemic risk is important,” Aguilar said. “However, there is
real danger in that work being compromised if the full five-member commission is cut out of the process.”

Members Prescribed

The FSOC’s voting membership is prescribed by the 2010
Dodd-Frank Act and includes SEC Chair Mary Jo White, along with
Lew and the leaders of seven other financial regulators.
Principals such as White are permitted to bring one other person
from their agency to an FSOC meeting, said Suzanne Elio, a
Treasury spokeswoman.

“We defer to the agencies and principals as to who
attends,” Elio said.

Richard Berner, the director of Treasury’s research office,
told the House Financial Services Committee in February that the
report was fair. The study wasn’t intended to evaluate specific
firms and doesn’t by itself mean asset managers will face
stricter oversight, Berner told the lawmakers.

White told the Senate Banking Committee in February that
the SEC “provided technical assistance” and feedback on the
asset-manager report. The SEC and the OFR agreed “to disagree
on a number of things,” she said.